As of Sept 28, 2001, the NASD (now, FINRA) and NYSE amended their definitions of day traders. A new term that they use is "pattern day trader". An investor can be classified as a pattern day trader by having one of the two following characteristics:

  1. He or she trades four or more times during a five-day span, or
  2. The firm where the investor is making transactions, or opening up a new account, reasonably considers him or her a day trader

Once an investor is considered a day trader, the brokerage must classify him or her as such, and the investor is then subject to increased equity requirements. Mainly, the brokerage must require a minimum equity of $25,000 at the beginning of the customer's trading day. This minimum equity requirement has been introduced by the Securities & Exchange Commission and the NYSE. Ensuring that any substantial losses can be offset by the day trader's own equity, the requirement addresses the inherent risk imposed on brokerages by leveraged day trading activities.

A more restrictive margin rule has also been implemented. Day traders are permitted to purchase only four times their maintenance margin levels. If this level is exceeded, the firm must issue a margin call to the day trader who subsequently has five business days to deposit the funds before the account is halted from additional trading.

For further information, see our articles Defining Active Trading and Day Trading: An Introduction.

  1. Are UTMA accounts escheatable?

    Like most financial assets held by institutions such as banks and investment firms, UTMA accounts can be escheated by state ... Read Full Answer >>
  2. Can the IRS audit you after a refund?

    The U.S. Internal Revenue Service (IRS) can audit tax returns even after it has issued a tax refund to a taxpayer. According ... Read Full Answer >>
  3. How does escheatment impact a company?

    In recent years, state governments have become increasingly aggressive in enforcing escheatment laws. As a result, many businesses ... Read Full Answer >>
  4. What happens if property is wrongfully escheated?

    If your financial accounts, such as bank, investment or savings accounts, are declared dormant and the managing financial ... Read Full Answer >>
  5. How do financial advisors help you avoid escheatment?

    Financial advisors can help you avoid the escheatment of your financial assets by regularly reviewing all of your accounts, ... Read Full Answer >>
  6. Are 401(k) accounts escheatable?

    Typically, 401(k) plans are not subject to state escheatment laws because they are covered under the Employee Retirement ... Read Full Answer >>
Related Articles
  1. Technical Indicators

    Using Pivot Points For Predictions

    Learn one of the most common methods of finding support and resistance levels.
  2. Investing Basics

    What are the fiduciary responsibilities of board members?

    Find out what fiduciary duties a board of directors owes to the company and its shareholders, including the duties of care, good faith and loyalty.
  3. Investing News

    What Affirmative Action Means for Businesses

    A look at what Affirmative Action means for your business.
  4. Investing

    Protect Your Creations--Register Your Trademark

    Federally registering your brand name or logo offers the broadest protection against potential trademark infringement.
  5. Investing Basics

    Quit Your Job To Trade Stocks

    Changes in technology have turned trading into a career field that’s easy to enter. But staying in it is a different story.
  6. Active Trading Fundamentals

    5 Must Watch Films and Documentaries for Day Traders

    Discover these five must-watch films and documentaries for day traders reviewed with the takeaway lessons that inspire, motivate and entertain.
  7. Trading Strategies

    The Traits All Baller Traders Have In Common

    When it comes to traders, these are the traits that separate the wheat from the chaff.
  8. Active Trading Fundamentals

    Playing It Safe With Trades? Or Holding Yourself Back?

    Fear of breaking out of a comfort zone can prevent an investor from reaching his or her full potential.
  9. Mutual Funds & ETFs

    The Top 7 ETFs For Day Trading

    ETFs that offer cost efficiency with high liquidity are ideal for day trading. Here are some of the top ETFs for day trading.
  10. Investing Basics

    4 Movies Showing the Real Side of Finance

    Read about the most accurate and realistic movies about the financial industry and the people who have to work every day in a fast-paced, high-stakes arena.
  1. Novation

    1.The act of replacing one participating member of a contract ...
  2. Maintenance Margin

    The minimum amount of equity that must be maintained in a margin ...
  3. Emergency Banking Act Of 1933

    A bill passed during the administration of former U.S. President ...
  4. Slander

    Slander is the act of harming one person’s reputation by telling ...
  5. Libel

    Libel is publishing a statement about someone in written form ...
  6. Defamation

    Defamation is any statement (written or spoken) that damages ...

You May Also Like

Hot Definitions
  1. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  2. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  3. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  4. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
  5. Black Monday

    October 19, 1987, when the Dow Jones Industrial Average (DJIA) lost almost 22% in a single day. That event marked the beginning ...
  6. Monetary Policy

    Monetary policy is the actions of a central bank, currency board or other regulatory committee that determine the size and ...
Trading Center